Latest / Merryn Talks Money / How to Buy a House in the UK Right Now

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How to Buy a House in the UK Right Now · Merryn Talks Money

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Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
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Speaker 2: Welcome to Meren Trogs Your Money, the Personal Finance, a
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Speaker 2: vision of Merin Talg's Money. In these bonus podcasts, we
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Speaker 2: talk about the best strategies for making the most of
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Speaker 2: your money. I'm Marin sumsat Wet with Bloomberg UK Wealth
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Speaker 2: Editor at Large and with me senior reporter and author
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Speaker 2: of the award winning, Yes Award winning newsletter Money Distilled.
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Speaker 2: John Steppeck Hi, John, Hi, special day. Right, We're about
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Speaker 2: to do something we don't normally do, a mini series,
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Speaker 2: and this one is going to be on the one
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Speaker 2: thing apart from Golden Bitcoin, that our listeners really really
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Speaker 2: care about. Yeah, it's housing, heday, I know. And every
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Speaker 2: week we're going to look at a different topic. We're
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Speaker 2: going to cover everything you need to know, from what
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Speaker 2: the market looks like at the moment, how we expected
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Speaker 2: look or raunther, how other people expect it to look,
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Speaker 2: and everything you need to know about how to get
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Speaker 2: on that ladder. Yeah, that's right.
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Speaker 3: We're really excited about this, showing we can handle the
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Speaker 3: commitment to plan in our head that far from the
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Speaker 3: entail series, I'm just seeing.
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Speaker 2: I'm a planner. I can plan anyway we have to plan,
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Speaker 2: because there's a whole series. I'm going to cover every
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Speaker 2: single topic that you need to know about when it
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Speaker 2: comes to looking for a house in the UK, looking
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Speaker 2: at the UK property market and figuring out how to
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Speaker 2: deal with it. And we're going to start with the
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Speaker 2: most important episode in one that talks about the market
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Speaker 2: as a whole, where it is right now and how
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Speaker 2: to look at it, and the next couple of weeks
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Speaker 2: we're going to cover everything from how to get a
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Speaker 2: mortgage broker, whether you should have a mortgage broker, whether
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Speaker 2: you need a buying agency. Probably spoiler alert you do,
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Speaker 2: shared ownership? Is it worth it? You've got a spoiler
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Speaker 2: alert on that one. John, it's not. It's not. You're
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Speaker 2: going to guess is buying a new property always a mistake? Again?
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Speaker 2: Make sure spoiler alert there. Freehold versus lease hold? Which
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Speaker 2: is better? Why is it better? I think we all
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Speaker 2: instinctively know the answer to that, but we will tell
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Speaker 2: you about it in detail, and a couple more topics aside.
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Speaker 2: So there is a lot. John is so excited about this.
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Speaker 3: I just cannot we and I just wanted to.
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Speaker 2: See you say it in that voice. But it's not true.
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Speaker 2: You don't mean you really are in it every time,
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Speaker 2: every time more property numbers come out, You're always mad
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Speaker 2: to write a property, a column about property. You know
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Speaker 2: it's going to be read by everybody, right.
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Speaker 3: Yeah, I do. I do love to cligbit.
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Speaker 2: So on the show today you're going to be hearing
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Speaker 2: a conversation I had with professor of real estate Yolanda Barnes.
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Speaker 2: Professor Barnes teaches at University College of London and is
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Speaker 2: an expert in, as she puts it, thinking about things
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Speaker 2: that people in the real estate industry aren't yet thinking about.
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Speaker 2: We discuss why the enormous rise of house prices in
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Speaker 2: the UK except to page so that'll be nice, while
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Speaker 2: your first home should actually be your forever home, and
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Speaker 2: why she thinks it's possible that quite soon the UK
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Speaker 2: will not have too few homes, but too many homes
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Speaker 2: here first for it.
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Speaker 3: John, She's that seems great. Yeah, I'm forty, isn't that one?
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Speaker 2: Listening? Yo, Landon, Thank you and welcome to this podcast.
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Speaker 2: You are our first guest in our property series, so
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Speaker 2: we really appreciate you coming in.
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Speaker 4: It's a real pleasure to be here, it's not honor great.
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Speaker 2: Well, we're going to try and cover a massive topic
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Speaker 2: in a relatively short amount of time. So what I
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Speaker 2: would love it if you could do for us, just
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Speaker 2: as a starter, is give us a very general overview
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Speaker 2: of what's happening in the UK residential property market at
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Speaker 2: the moment. In prices, as we know, have been relatively
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Speaker 2: flat for quite a long time now, so it looks
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Speaker 2: like the bubble at least is over, but there is
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Speaker 2: no crash. Obviously, there's lots of regional variation, lots of
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Speaker 2: variation between different types of housing, but things are kind
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Speaker 2: of flat. Is that fair?
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Speaker 4: I think that's very fair. I actually say we've come
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Speaker 4: to the end of the sort of late twentieth century
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Speaker 4: Great inflation, which of course included asset price inflation. So
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Speaker 4: by my reckoning, about half of the six hundred percent
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Speaker 4: or so growth that we've seen since the nineteen nineties
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Speaker 4: has been down simply to the reduction in interest rates,
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Speaker 4: which means we're capitalizing the value of housing at a
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Speaker 4: lower rate than we did, and that caused automatic house
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Speaker 4: price inflation. So that's out of the system now. We
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Speaker 4: can't rely on that. The housing market escalator isn't going
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Speaker 4: up anymore. And the only way I think we're going
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Speaker 4: to see values rise in housing is through genuine value
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Speaker 4: add There are market forces at play where basically a
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Speaker 4: lot of people want a house and there's limited supply
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Speaker 4: of that type of house.
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Speaker 2: Okay, so we still have very high demand for housing
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Speaker 2: in the UK, although we always say on this show
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Speaker 2: we have to be careful to distinguish between genuine economic
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Speaker 2: demand and stuff people want but can't afford, because that's
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Speaker 2: a different thing altogether.
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Speaker 4: Right, Yeah, I mean you could say demand for housing
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Speaker 4: is almost infinite. I mean, the way I think of
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Speaker 4: it is until everybody living in a mansion, probably none
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Speaker 4: of us are fully housed.
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Speaker 2: But that's not real demand. That's not economic demand. That
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Speaker 2: stuff people want, which really doesn't have any impact on
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Speaker 2: the market.
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Speaker 4: Well, it has impact on consumer markets, of course, if
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Speaker 4: we were talking about a consumer good, we would be
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Speaker 4: talking about demand for luxury goods or whatever. It's not
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Speaker 4: quite a straight relationship between one household equals demand for
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Speaker 4: one home. And actually we've been occupying larger and larger
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Speaker 4: homes over the years. When we're talking about supply, we've
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Speaker 4: got to consider strong qualitative element of that supply.
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Speaker 2: Okay, So when you look out, let's say over the
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Speaker 2: next decade, you would expect to see house prices flat
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Speaker 2: ish in nominal terms, possibly falling slightly in real terms.
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Speaker 2: Is that fair?
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Speaker 4: Yeah? I suppose in the long run you would expect
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Speaker 4: housing to pretty much follow inflation in other goods and services,
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Speaker 4: which means no real growth.
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Speaker 2: And that's even though we're seeing fairly strong wage growth
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Speaker 2: in the UK. So you might say that if wages
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Speaker 2: grow more strongly than inflation, and over the next ten
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Speaker 2: year period, you could expect to see house prices rise
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Speaker 2: along with wages as opposed to a long with inflation.
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Speaker 4: If demand exceeds supply, and with the big sort of
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Speaker 4: emphasis on the quality of demand and the quality of supply,
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Speaker 4: then you would expect to see house prices rise. However,
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Speaker 4: I think there are big questions around both demand and
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Speaker 4: supply going forward as well. I think that come next year,
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Speaker 4: we're actually going to start to see a surplus in
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Speaker 4: the market. This goes completely against a lot of the
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Speaker 4: thinking that's sort of driving the supply side issues. But
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Speaker 4: the plain fact is that we have been aging, but
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Speaker 4: we've become aged, so the rate of death is going
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Speaker 4: to go up and homes are going to be vacated
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Speaker 4: through executive sales. At the same time, because of demographic
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Speaker 4: changes and particularly fertility rates and so forth, the rate
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Speaker 4: of household formation is going down. So through simple demographic effects,
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Speaker 4: you've got simultaneously a rising number of homes being vacated
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Speaker 4: by older people downsizing or becoming deceased, and at the
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Speaker 4: same time you've got still growing household numbers, but at
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Speaker 4: a much lower rate than we've been.
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Speaker 2: Used to in the past.
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Speaker 4: And so the two lines are kind of moving away
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Speaker 4: from each other, and in the middle you get a surplus. Now,
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Speaker 4: bear in mind that ninety percent of the market is
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Speaker 4: supplied from second hand stock, is not supplied by the
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Speaker 4: speculative housebuilders, who are kind of a specialist niche building
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Speaker 4: about ten percent of stock in any one year. That
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Speaker 4: means that the second hand market has the biggest impact
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Speaker 4: on prices, and speculative housebuilders of price takers, not price makers.
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Speaker 4: So regardless of how much new stock, there is going
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Speaker 4: to be much greater surplus of the stock that most
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Speaker 4: people buy any given year.
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Speaker 2: Interesting, and that sounds like if you're talking about that
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Speaker 2: housing free up because of the older people dying. That
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Speaker 2: suggests that the surplus will be at the higher end
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Speaker 2: of the market, larger home, rural homes, etc. As opposed
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Speaker 2: to say, the two bedroom flat end of the market.
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Speaker 4: Absolutely, it will tend to be what you might call
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Speaker 4: street properties, the single family homes, rather than the multi
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Speaker 4: family housing.
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Speaker 2: So you learned to here. I am, I'm coming to you.
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Speaker 2: I'm a young person, well youngish, and maybe I've got
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Speaker 2: a small family. Maybe I've married and I've got two kids.
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Speaker 2: What do you recommend I buy? What do you recommend
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Speaker 2: I do in a market like this? I mean, maybe
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Speaker 2: I should just rent. Maybe I should just rent.
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Speaker 4: I still think there are very good reasons to buy.
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Speaker 4: I suppose my biggest concern and I think I think
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Speaker 4: one of the ways that we've sort of been characterizing
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Speaker 4: affordability in relation to incomes isn't very helpful, because, of course,
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Speaker 4: if you could be exactly the same young person with
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Speaker 4: the same family and have access somehow to capital, to equity,
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Speaker 4: or you could be somebody who doesn't. So a lot
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Speaker 4: of whether you enter the conventional housing market depends on
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Speaker 4: whether you have equity for housing. So usually that's called
9:21
Speaker 4: the bank of Mum and Dad or it might increasingly
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Speaker 4: be inheritance, but the world kind of divides into equity
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Speaker 4: haves and equity have nots. Before you even start to
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Speaker 4: think about the type of property you buy, you're having
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Speaker 4: to think about the nature of your finance, and that's
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Speaker 4: going to affect the affordability. But let's assume you've managed
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Speaker 4: to save a sufficient deposit to obtain a mortgage. I
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Speaker 4: think the first tip is to think very carefully about
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Speaker 4: all those other costs of what you're buying, and that
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Speaker 4: you could not only afford the mortgage, but you could
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Speaker 4: you can also afford the energy costs and the mainintenance
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Speaker 4: and upkeep. I suspect your mortgage supply will increasingly be
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Speaker 4: asking that question. One home is always going to be
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Speaker 4: worth one home to you, so I think I think
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Speaker 4: the trick, and this is something that people have been
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Speaker 4: doing anyway, is when you do buy your forever home
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Speaker 4: or the home you're going to stay longest in. Because
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Speaker 4: the costs of trading, there's no longer the option really
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Speaker 4: to trade up every long rung of the so called
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Speaker 4: housing ladder. It doesn't work like that. The costs of
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Speaker 4: trading are just too too high to make that worthwhile
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Speaker 4: so what you want to do is just buy the home.
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Speaker 4: Buy the home in the location that you can see
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Speaker 4: yourself being happy to be in for the next thirty years.
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Speaker 4: You know, the place where you're happy to raise those children.
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Speaker 4: And so neighborhood is becoming much much more important, I
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Speaker 4: think than just the individual sort of property. It really
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Speaker 4: is the most important choice you'll make. I mean, the
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Speaker 4: old adage by the worst house in the best street
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Speaker 4: is sometimes a good one because I suppose this comes
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Speaker 4: back to the fact that when you're buying a home,
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Speaker 4: actually what you're buying is land. It's the land value
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Speaker 4: that's going to take up the most of the value
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Speaker 4: of a lot of properties throughout the country. It's very
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Speaker 4: rare that the costs of building the home are greater
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Speaker 4: than the value of the home. So the remainder is
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Speaker 4: land value. That's the locational value. And that's why neighborhoods
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Speaker 4: so important. So look at the neighborhood and the liveability
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Speaker 4: and what you want to get out, the utility and
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Speaker 4: amenity you want to extract, as it were, from your
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Speaker 4: own over a substantial period of time. And then actually
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Speaker 4: what happens to house prices doesn't matter very much. Because
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Speaker 4: you're housed at a price you can afford in a
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Speaker 4: place you love, and that's the name of the game.
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Speaker 4: And that means quite possibly taking a lot longer to
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Speaker 4: purchase a home than maybe we've been used to.
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Speaker 2: Okay, interesting, So the key advice there is to buy
12:07
Speaker 2: assuming you're not moving.
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Speaker 4: Yeah, I think so.
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Speaker 2: Do you see divisions in the market, regional divisions between
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Speaker 2: London where prices have in certain segments of London have
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Speaker 2: definitely been falling faster than in other areas. And we've
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Speaker 2: seen some big problems in prime London, right, depending on
12:21
Speaker 2: how you view a problem, obviously, but prime London prices
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Speaker 2: have been struggling and flat prices in London have been struggling.
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Speaker 2: But there have been some areas in the North where
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Speaker 2: we've seen quite impressive price prices, right, So there's quite
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Speaker 2: a lot of regional disparity in here as well.
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Speaker 1: Yeah.
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Speaker 4: I think this is what most as will call a
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Speaker 4: late cycle play. This is exactly what you'd expect after
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Speaker 4: the immense rises that we saw in London and the
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Speaker 4: South after COVID. I think it's the North playing catch up.
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Speaker 2: Okay. I was vaguely hoping you might tell us that
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Speaker 2: it was excitement about the reindustrialization of the UK and
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Speaker 2: house prices moving in advance of a productivity boom in
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Speaker 2: the Midlands. In the North. I'll keep hoping for that one.
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Speaker 2: So from what you're saying, it rather suggests that the
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Speaker 2: UK government plan to build, build, build, which everyone knows
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Speaker 2: that won't happen. But nonetheless it's a plan, like it
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Speaker 2: is for all governments. As you that plan isn't strictly
13:18
Speaker 2: speaking necessary.
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Speaker 4: It is not only not necessary, it could be quite
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Speaker 4: damaging in certain respects. One of the things that I'm
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Speaker 4: most conscious of is that actually the sort of fuel
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Speaker 4: poverty or energy poverty of many households means that we
13:35
Speaker 4: could much more productively, I think, concentrate house building, as
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Speaker 4: it were, home building to the retrofit of homes to
13:43
Speaker 4: reduce energy costs, and quite simply making existing homes better
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Speaker 4: would supply the market. We don't necessarily have to build
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Speaker 4: from scratch, and because it's a very expensive thing, you
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Speaker 4: have problems of land supply if you're building completely new
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Speaker 4: homes on bear field land. So we set ourselves a
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Speaker 4: very very difficult thing to do, and in particular very
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Speaker 4: difficult thing to do given the paucity of sort of
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Speaker 4: business models and economic models to actually deliver the housing.
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Speaker 4: Britain is really really odd amongst any certain European nation
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Speaker 4: in completely relying on speculative housebuilders to create new supply
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Speaker 4: of housing. The rate of self procurement, community build, self
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Speaker 4: build is much much higher elsewhere, so there's much greater
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Speaker 4: diversity of ways of getting yourself a home than buying
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Speaker 4: off a house builder.
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Speaker 2: And that's kind of a planning problem in the UK,
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Speaker 2: isn't it. Pot planning part cultural.
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Speaker 4: Ims a planning problem so much as we need to
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Speaker 4: create new industries, I mean, this is a growth story
14:49
Speaker 4: in my view that if you really want to expand
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Speaker 4: the economy to construction, you need to actually create more
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Speaker 4: ways of owning and stewarding and developing and maintaining and
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Speaker 4: repairing land and buildings than we currently have.
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Speaker 2: I've really enjoyed you calling the house builders the speculative housebuilders.
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Speaker 2: By the way, I think we need to do another
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Speaker 2: podcast on that, not for this one, but let's do
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Speaker 2: that one another time. The other thing I wanted to
15:17
Speaker 2: ask you about is that when people go out into
15:19
Speaker 2: the market, particularly first time buyers and maybe last time buyers,
15:23
Speaker 2: as well, they often think that what they need is
15:25
Speaker 2: a flat, not a house. So they look at the
15:28
Speaker 2: market and they go, well, I'm buying something quite small,
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Speaker 2: maybe thousand square foot or smaller, whatever it is, because
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Speaker 2: I'm a young person or I'm an old person, down sizing,
15:35
Speaker 2: so I should definitely only be looking at flats as
15:39
Speaker 2: opposed to houses. But you have spoken quite interestingly about
15:43
Speaker 2: the mistake that we make when we want to live
15:46
Speaker 2: in smaller spaces or we want to live in dense spaces,
15:50
Speaker 2: in thinking that if we want to live in a
15:52
Speaker 2: high density way, we need to live in a high
15:54
Speaker 2: rise way. And this doesn't necessarily correlate.
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Speaker 4: Yes, spell the myth that high rise means high density,
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Speaker 4: you can get just as high density with mid rise
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Speaker 4: sort of townhouses or modern mansion blocks. You certainly don't
16:10
Speaker 4: have to go high rise to get density. And where
16:14
Speaker 4: we have built not only high rise buildings but what
16:18
Speaker 4: I call massive buildings big block flatted housing. So a
16:23
Speaker 4: mid rise would be the mansion block. It's also slim block,
16:26
Speaker 4: a street based building that is not deep. Whereas, because
16:32
Speaker 4: of peculiarities and planning laws and various other things, we
16:36
Speaker 4: have been building massive blocks, which maybe let's say ten
16:40
Speaker 4: store is high so not high rise in the conventional
16:44
Speaker 4: sense of towers, but also very deep buildings with a
16:49
Speaker 4: lot of communal sort of distribution space internally, and that
16:55
Speaker 4: causes problems because the cost of maintenance and up keep
17:00
Speaker 4: of those buildings is significantly higher, I mean really, in
17:05
Speaker 4: some cases problematically higher than simpler buildings on a street
17:10
Speaker 4: based sort of brid So the sort of things that
17:14
Speaker 4: apartments that we've been building over the last thirty years
17:17
Speaker 4: or so are inherently more expensive to run. And Loco
17:22
Speaker 4: Bossier talked about towers being machines for living in, and
17:26
Speaker 4: these are expensive machines for living in, so apart from
17:30
Speaker 4: anything else you might want to say, the lift and
17:33
Speaker 4: all that plant and machinery replaced after say thirty years,
17:36
Speaker 4: that's a very expensive undertaking. Even where you don't have
17:40
Speaker 4: those sorts of problems, you've got a lot of corridors
17:44
Speaker 4: and lobbies, communals, faces to heat, light, decorate and refurbish
17:50
Speaker 4: over time.
17:51
Speaker 2: Well, I was thinking earlier you lend it about windows.
17:54
Speaker 2: I was thinking about it. You know, let's look at
17:55
Speaker 2: this very simply. In a two or three story house,
17:58
Speaker 2: is not that hard to clean the windows once you
18:00
Speaker 2: get about four or five six stories, you're talking about
18:03
Speaker 2: proper scaffolding or men dangling from the roof, etc. EXCEA.
18:07
Speaker 2: Pretty much everything becomes significantly more expensive.
18:10
Speaker 4: Yes, And if we built buildings with say these A
18:14
Speaker 4: pod bathrooms that were craned into place as they were built,
18:18
Speaker 4: everyone got very excited about modern, modern methods of construction.
18:22
Speaker 4: But what happens when that bathroom needs replacing becomes quite
18:26
Speaker 4: a difficult technical issue because you're sure as heck, I
18:28
Speaker 4: aren't going to be able to get a crane up
18:29
Speaker 4: there to replace the porn. So I think there are
18:33
Speaker 4: all sorts of costs associated with some of the things
18:40
Speaker 4: that we've been built that will start to exacerbate that
18:44
Speaker 4: polarization that you started to talk about in the market.
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Speaker 4: That between the simple terraced house or street property versus
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Speaker 4: the two bedroom flat in the twelfth floor of a
18:57
Speaker 4: big block, there's quite a world of difference and the
19:00
Speaker 4: sort of lifetime costs of running those two homes.
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Speaker 2: Yeah, we've heard a lot recently about people buying flats
19:06
Speaker 2: lease holes, and that that's changing obviously with the new regulations,
19:09
Speaker 2: but the cost will remain the same, and seeing their
19:12
Speaker 2: service charges ratchet up over and over at levels that
19:15
Speaker 2: they certainly didn't expect when they bought. And it's kind
19:17
Speaker 2: of an interesting example of how these costs keep moving
19:21
Speaker 2: in directions to people simply didn't expect because they didn't
19:23
Speaker 2: understand how much more expensive it is at per square
19:26
Speaker 2: foot to maintain a whooping great building like this relative
19:29
Speaker 2: to a three bedroom terraced house.
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Speaker 1: Yeah.
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Speaker 4: I think we're going to see a lot of angst
19:35
Speaker 4: and problems starting to come up around service charges. And
19:41
Speaker 4: these service charges are in some cases artificially low right
19:46
Speaker 4: now because they haven't got what's called the sinking fund
19:49
Speaker 4: to pay for the future repair and maintenance and replacement
19:53
Speaker 4: of plant, for example, so they look reasonable and artificially low.
19:58
Speaker 4: They can only go up as time goes on. And
20:01
Speaker 4: of course, maybe people didn't mind paying a big service
20:04
Speaker 4: charge when the value of the home was rising by
20:09
Speaker 4: many times more than that service charge every year. But
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Speaker 4: I think if we're into a very low growth, relatively
20:17
Speaker 4: low growth period for home prices, then you'll really get
20:21
Speaker 4: to start noticing the cost of maintenance and upkeeper and
20:24
Speaker 4: service charges.
20:25
Speaker 2: Yeah, and that should make a long term difference to
20:28
Speaker 2: the value of the flats and the price at which
20:30
Speaker 2: they can sold, which presually you can already see people
20:32
Speaker 2: getting instinctively because the prices of leasehold flats are lower
20:37
Speaker 2: than you might have expected a decade ago.
20:38
Speaker 4: Exactly, you're going to have to somehow capitalize your costs
20:44
Speaker 4: over the time you expect to occupy the home, and
20:48
Speaker 4: you're going to want to get that knocked off the
20:49
Speaker 4: capital value. That just simple as that. This is what
20:53
Speaker 4: I mean by the qualitative nature of supply. There's going
20:56
Speaker 4: to be these big sort of qualitative differences between the
20:59
Speaker 4: good homes and the expensive homes, expensive to run homes.
21:03
Speaker 2: I think we've covered the basics of the housing market,
21:05
Speaker 2: how it looks, and have people should be looking at
21:07
Speaker 2: it at the moment. Is there anything you can think
21:10
Speaker 2: of that we've missed on that conversation.
21:13
Speaker 4: The housing market, I've often said, is not a single market.
21:16
Speaker 4: It's a series of submarkets or waving in different ways.
21:20
Speaker 4: So there are big global influences, like the reduction in
21:25
Speaker 4: interest rates, which has a really powerful effect. But what
21:30
Speaker 4: it means is that there are just so many caveats
21:33
Speaker 4: and conditions on what I've just said that it's very
21:37
Speaker 4: difficult to talk in general terms. But I think the
21:40
Speaker 4: main point is that we've got to get used to
21:43
Speaker 4: the twenty first century being a different environment. I think
21:45
Speaker 4: the more we look back on it, the more we
21:47
Speaker 4: all see the late twentieth century as an abnormal period
21:51
Speaker 4: in history when inflation and interest rates and growth and
21:55
Speaker 4: prices went crazy, and we're in for something quite different.
22:00
Speaker 4: I think going.
22:00
Speaker 2: Forward orlanda thank you so much for joining us today.
22:03
Speaker 4: It's been a real pleasure.
22:04
Speaker 2: Thank you. Thanks for listening to this week's Meren Talks
22:09
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